This is the perfect loan for the Philadelphia home buyer who wants to buy a fixer-upper and turn it into their dream home.
The FHA 203(k) Rehabilitation Loan allows a homeowner to buy a home, in any condition, and finance the repairs / improvements to the property. These loans can be done with either a purchase of a new home or a refinance of the borrower’s existing home.
There are two types of FHA 203(k) loans:
Streamline 203(k) - Repairs and improvements that do not exceed $35,000.
Full 203 (k) - Anything exceeding $35,000 in repairs and improvements.
Certain repairs, regardless of their dollar value must be done under a full 203 (k) – for instance any structural repairs/remodeling.
The minimum amount of the loan is $5,000 and there is no maximum amount.
What repairs/remodeling items are allowed?
Most improvements are eligible provided they add value and are permanently affixed to the foundation.
Improvements to detached structures and luxury items are not allowed.
On a Streamline 203(k) – major remodeling and room additions are not eligible.
What is the maximum I can borrow?
On a purchase transaction, the amount is 96.5% of the loan-to-value.
On a refinance transaction, the amount is 97.5% of the loan-to-value.
In no circumstance, can the loan amount be greater than the maximum allowable FHA mortgage amount for the geographic area.
How is loan-to-value determined?
The loan-to-value is based on the lesser of:
The sales price or “as os” appraised value plus borrower paid repairs OR
110% of the “as completed” appraised value.
On a full 203(k), you can even finance up to 6 months of mortgage payments while the home is being renovated as long as the home is determined to be uninhabitable.
Rates are generally about .25% higher, these loans take longer to close and of course there is more paperwork involved. Not all lenders are able to do these loans. In fact many loan officers will not do these loans as they are quite specialized and involve more time and attention.
Think this loan might be for you? Give us a call and we will be glad to get you started.
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